S And P Launches Credit Rating Scale For GCC Region
Wednesday, February 17, 2010

Standard and Poor's Rating Services has announced the launch of a new regional credit rating scale for the Gulf Cooperation Council (GCC) one of several new initiatives the ratings agency is undertaking in the region to support debt markets. The GCC includes Bahrain, Kuwait, Saudi Arabia, Oman, Qatar, and the United Arab Emirates.

The new scale reflects demand from Gulf issuers and investors for an additional rating scale that helps them to better compare the relative credit risk of issuers and issuances across the region, and is expected to contribute to better informed, more liquid, and more efficient capital markets in the Gulf.

The GCC scale will cover a wide array of funding instruments issued in local currencies, including capital markets debt, project finance debt, bank loans, and Shariah-compliant obligations. It will complement S&P's existing global rating scale, which remains available to issuers in the GCC, by providing a finer distinction of the relative credit quality of Gulf debt issues and issuers.

The GCC regional rating scale follows the successful launch of S&P's first regional rating scale in May 2009 for the Association of South East Asian Nations (ASEAN) and the development of 15 national rating scales by S&P in other markets over more than two decades. More than 65 ratings have been assigned on the ASEAN regional scale since its launch.

"S&P started developing the GCC regional scale in early 2008, when local currency debt issuance was quite high," said Jan Willem Plantagie, Middle East Regional Manager at Standard & Poor's. "Although local debt issuance peaked in 2006-2008, we expect a resurgence in local currency issuance over the coming years, driven by large financing needs for infrastructure development, stronger competition for funds in the GCC, and government initiatives to stimulate local bond markets, such as those being undertaken in Saudi Arabia. The anticipated launch of the GCC Monetary Union is also expected to drive demand for regional scale ratings."

Rob Richards, Standard & Poor's Managing Director and Criteria Officer, said regional scale ratings could be assigned to any GCC-domiciled issuer, including corporates, banks, insurance companies, and sovereigns, at their request, and would be identifiable by the prefix 'gc' (for example, 'gcAA+'). Counterparties, intermediaries, and investors seeking an independent benchmark to compare credit quality and risk relative to other issuers and issuances within the Gulf are expected to find the scale useful.

"The criteria used by S&P to analyze business and financial risk are the same for both the regional and global rating scales," Richards said. "However, while global scale ratings are assigned based on a comparison of credit risk among issuers and issuances located all over the world, the GCC regional scale will focus on comparing credit risk relative to Gulf issuers and issuances only."